ObamaCare and That Silly Constitution

Thus far the 6th Judicial Circuit has ruled that ObamaCare is constitutional and the Eleventh Judicial Ciruit has ruled that ObamaCare is unconstitutional. The issue is headed to the US Supreme Court, with the ruling probably being handed down next year in the midst of what promises to be one of the bitterest Presidential contests in our nation’s history. How was a measure of such dubious constitutionality passed by Congress? Former Representative Phil Hare (D. Ill.) explains:

19 Responses to ObamaCare and That Silly Constitution

I think ObamaCare is unconstitutional but to deflate some of the partisan rhetoric:

1. An individual mandate may be unconstitutional but single-payer Medicare-style universal health care is not. Neither is an employer mandate. The Constitution isn’t as limiting of federal power as many opponents of ObamaCare make it out to be.

2. Most Republicans supported an individual mandate in the 90’s and didn’t think it unconstitutional. Perry, Romney, Newt, and Huntsman supported it. To Santorum’s credit, he opposed the mandate even back then. As did Ron Paul, and presumably Gary Johnson. I doubt Bachmann has any record of a position from back then. Cain opposed Clinton’s employer mandate but I don’t think he took any position on an individual mandate.

3. So raising taxes is bad, in part, because more tax revenue makes government bigger. But lowering taxes increases tax revenue which makes government bigger. Am I getting that right?

Raising tax rates almost always has a negative impact on the economy, just as slashing rates almost always has a positive impact on the economy. As the Obama debacle illustrates, you can have a government growing by leaps and bounds with a poor economy. Best to slash rates, grow the economy, and elect people who understand that growing the government is bad for the economy and almost everyone else, except for those who get a paycheck from Leviathan.

Yes, Leviathan from federal to state to municipal and the social ‘welfare’ beneficiaries.
I have hope for the objectivity of the U. S. Supreme Court because they have read the U.S. Constitution and have sworn to uphold it, unlike the sworn in politicians whose party politics replace their objectivity, common sense, reason, and dangerously shorten attention spans.

If a one thousand Whatits are sold a year at 1 one dollar each , and people will only spend one thousand dollars on whatits, and we decide to impose a tax of 10 cents per whatist we do not receive $100 dollars in taxes we receive about $91.00 in revenue. A second hike of 10 cents will produce an addition 83.30 in additional revenue. Eventually additional increments of increase will result in a actual decrease in income as the number of whatsits being taxed are so few.

Of course in the there are complications like tax evasion, changing behavior to avoid the tax. etc which speed up the process. The citizens may buy untaxed black market whatits or they buy a substitute or just stop using whatits.

Don’s point, and I think he is correct, that we are past the equlibrium point – most of our tax rates are at the point where an i8ncrease will produce declining revenue – they suppress to much taxable economic activity. Lowering the tax rates will produce more taxable economic activity thus raising revenues.

Of course lowering enough would pass the equilibrium point in the other direction and revenues would start to go down, which brings up whole different set of issues.

Basically Obamacare will make the government bigger with no hope of producing the revenues to pay for it.

About 30 years Presidnt Reagan lowered the Income tax rates. For the next several years income tax revenues increase far larger than anybody expected.

This is what one would expect if the tax rate was set above equilibrium. (SInce Congress increased the budget even more the deficit went up, but that is a different number.)

Listen to the news, the ways governemntal bodies are trying to figure out new ways to get revenue is symptomatic of a situation where they no a simple increase of existing taxes will not produce the increased funds necessary.

I could be wrong, but when the politicians with good budget experts working for them act like the existing structure is past equilibrium, it probably is.

Hank, literally every economist disagrees with you. But that wasn’t even my point. If we accept the word of some Republicans that we are on the wrong side of the Laffer Curve, lowering tax rates will increase the size of government and raising taxes will shrink government. That isn’t to say that they should support higher taxes but they cannot simultaneous preach that we’re on the wrong side of the Laffer Curve and that lowering taxes will shrink government.

Long before Dr Laffer became famous and popularized the concept, of which the oldest surviving descriptions date from the 1400’s, I took the courses on government budgeting and finance. One fo the prof’s wore his left leaning ideas on his sleeve the other the his righ leaning ideas. But on this they both taught the same thing.

Dr. Laffer applied the the theory to income tastes and produced results that gored a lot of sacred cows.

Of course the equilibrium point varies with tax and over time but our political leaders, not wanting to cut spending, are acting like they know, public statements aside, that they know they cannot produce significant revenue from the existing tax structure and are looking for new sources.

The more important point is there are no credible economists who disagree with him.

“That isn’t to say that they should support higher taxes but they cannot simultaneous preach that we’re on the wrong side of the Laffer Curve and that lowering taxes will shrink government.”

While there is a correlation between the size of the fed gov and its gross revenues they are not one in the same. Equivocating on this issue will cause all kinds of errors in logic as conveniently demonstrated by the post.

The more important point is there are no credible economists who disagree with him.

Disagree with him on what point? Dr. Laffer contended that the marginal tax rates at which revenue collections would be maximized was lower than was generally assumed, ergo reductions in marginal rates would lead to higher revenue collections. He was wrong with regard to the marginal rates in effect in 1980 and he would be wrong if he advanced a similar thesis with today’s much lower marginal rates.

About 30 years Presidnt Reagan lowered the Income tax rates. For the next several years income tax revenues increase far larger than anybody expected.

For the record, the ratio of nominal federal revenue collections (from personal taxes) to nominal personal income was as follows:

Revenue collections as a share of personal income declined each year Mr. Reagan’s preferred legislation was being implemented and the pro-cyclical aspect of revenue collections was noticeably weaker during the period running from 1985-90 than was the case during the analogous periods the business cycles preceding and succeeding. Please note that revenue collections as a share of personal income did not decline after the tax increases enacted in 1990 and 1993.

1. The Federal Reserve was successful during the period running from 1979 to 1982 in re-stabilizing prices. However, we still had considerable inflation. The GDP deflator increased at a rate of 5.2% per annum during the period running from 1980 to 1985. It increased at a rate of 2.1% per annum in the last five years. In times of high inflation (or, indeed, any inflation) you expect nominal values to increase on a year-to-year basis, so nominal tax revenues are not instructive.

2. You could make use of real tax revenues as an indicator. However, tax rates are not the only factors which affect the value of real revenues. The economy fell into two recessions over the period running from March of 1980 to November of 1982. You ordinarily expect expect real revenues to decline in times of declining production. Income taxes tend to be procyclical, with peaks and valleys in revenue collection exceeding those in production or personal income, so you would actually expect smaller shares of personal income to be captured in taxes during recessions. The decline is more marked during the 1981-82 recession than during previous and subsequent recessions and the recovery in revenue capture also more muted.

3. Here is the index of real federal revenues collected from personal income taxes. The base year is 1973:

Some portion of the decline in real revenue observed in 1980 and 1983 can be attributed to the reduction in income tax rates and some portion to the recession. It is your contention that all of it and then some is attributable to the recession, because tax rates were so high that we were beyond that for maximal revenue collection. I think the descriptive statistics on revenue capture are inconsistent with that thesis.

I cannot help but notice that there is no observed decline in real revenues during the period running from 1990 to 1994 (quite the contrary), in spite of two tax increases. I think that suggests we were not on ‘the wrong side of the Laffer curve’ then. (And we are not now).

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Your implicit thesis is that a legislated tax increase (say, through excision of special deductions, exemptions, and credits) will place the federal revenue stream on a lower trajectory due to its effects on economic activity and thus exacerbate the deficit. The foregoing strongly suggests it will not (in part because federal income taxes are not the only factor influencing the level of economic activity).

That’s because there is no report which asks and documents the results of asking economists their perception of where federal income falls on the Laffer Curve.

I believe it was Ezra Klein who polled economists of his acquaintance on just this issue. There were a variety of answers offered. (I think Bradford deLong’s was an ultimate marginal rate of 70%). I am not sure there was one who suggested that an ultimate federal rate of 33% was superoptimal.

I should note that year-to-year improvements in real personal income and real domestic product during the period running from 1980 to 1990 were about the same as those from 1990 to 2000 (and metrics during both periods somewhat higher than they were during the period running from 1973 to 1980). Permanent tax reductions may be helpful, but that is not the only factor which influences economic dynamism.